Kumba‚ South Africa's largest iron-ore producer‚ has long spoken of wanting the diversity of a mine elsewhere in Africa. It has made various tentative forays into West Africa‚ burning its fingers at the Falémé exploration project in Senegal‚ when the government unexpectedly awarded the tenement to ArcelorMittal in 2007.
Anglo‚ which owns 70% of Kumba‚ has set up a 50/50 joint venture with its subsidiary in the hunt for an African project. The biggest obstacle in exploiting West Africa's vast iron deposits is the lack of rail and port infrastructure‚ which adds billions of dollars to any investment in building a large iron-ore mine.
Ferrex is traded on London's Alternative Investment Market and is exploring and developing iron-ore and manganese tenements in Africa.
Ferrex's Mebaga iron-ore deposit is in the very early stages of exploration‚ and Anglo and Kumba have agreed to fund and manage a two-year exploration programme there.
Ferrex has set itself a target of identifying between 90-million and 150-million tonnes of direct shipping ore of a grade between 35% and 65% iron. Direct shipping ore needs little processing and is of high enough grade to be mined and crushed to a certain size before it is sold.
"They approached us. They've been looking around Gabon and in that part of the world for projects where they can get a foot in the door at a relatively early stage where they see promise‚" Ferrex CEO Dave Reeves said on Thursday. "They're looking for operations that won't require billions of dollars in capital straight up‚ but something they can build organically instead of these big spends like Brazil."
Anglo has been criticised by investors and analysts for Minas Rio‚ where costs have ballooned and deadlines have been missed‚ making the diversified company cautious about taking on large new projects.
Ferrex had planned to spend up to £4m over two years exploring the deposit. Anglo and Kumba are likely to be more aggressive.
If the partners opt out of the project all their data will revert to Ferrex so it can continue work at the deposit.
"This is good news for Ferrex‚ as funding risk on this early-stage asset is borne by much more robust balance sheets in the form of Anglo and Kumba‚" VSA Capital said in a note.
The deposit is about 30km from a highway and 100km north of a railway line‚ which runs to a harbour 290km to the west. The railway carries timber and has capacity of 3-million tonnes available‚ Mr Reeves said.
Ferrex had considered a mine of between 1-million tonnes and 3-million tonnes a year because of rail capacity‚ he said.
Anglo and Kumba have asked that no details of the transaction be released until a detailed due diligence is completed‚ and a final shareholder agreement. The Gabon government's approval is needed‚ because the partners could take full ownership of the venture. These conditions should be settled by mid-February. Anglo and Kumba were not available for comment on Thursday.
Anglo is building a large iron-ore project called Minas Rio in Brazil for $8.8bn. Kumba and Anglo have different shareholders as separately listed companies in Johannesburg and London.
It is understood Kumba's focus is exclusively on Africa‚ and Anglo will look for iron deposits outside the continent. Anglo has a far bigger balance sheet than Kumba‚ and a deep pool of technical expertise to assist Kumba in assessing the deposit and building a mine.
Kumba has completed the 9-million tonnes a year Kolomela mine near Postmasburg in the Northern Cape on time and budget. The mine will operate above nameplate capacity of 10-million tonnes. It has the skills to build new mines.
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